Julian Assange and other true believers in
transparency argue that they have discovered the very crowbar to pry open the
U.S. government. Unfortunately for them, WikiLeaks will be more like a
boomerang—and the next generation of scholars are the ones who will be hit on
the head. Daniel W. Drezner is a
professor of international politics at the Fletcher School of Law and Diplomacy
at Tufts University. His next book, Theories of International Politics and
Zombies, will be published by Princeton University Press in February.

Wouldn't it be a "last laugh" if the second round of WikiLeaks was really a clever idea conceived in
Tel Aviv executed by the CIA?

Are WikiLeaks a U.S./Israel Conspiracy?
Consider this scenario. Suppose the the Pentagon's WiikLeaks were really
unauthorized leaks even if we have to stretch a bit to believe that an Army
private had access to all the leaked correspondence. Then suppose some smart
people in the CIA and State Department decide to dupe WikiLeaks in another round
to take advantage of the State Department's leaks for a net gain. There had to
be some heavy losses to make WikiLeaks genuinely believe they were not being
duped. But the net gains have been considerable in dividing the Islamic world,
revelations of China's cooperation with North Korea's spreading of WMDs,
exoneration of President Bush's contention that Saddam really was buying yellow
cake for development of WMDs, etc. It appears in the WikiLeaks that some Arab
nations are more afraid of Iran than Israel.

Quite a few people were shot down for claiming a conspiracy theory that that
President Bush and the CIA plotted the 9/11 attacks. I never bought into this
nonsense. However, some aspects of the WikiLeaks scandal lead me to suspect a a
conspiracy at some level in the CIA and State Department. The reason is that
there have been huge diplomatic benefits as well as costs to the U.S. One
benefit is that the leaks divided the Islamic world by showing that Arab
countries are probably more afraid of a nuclear Iran than their fear of nuclear Israel.
Another benefit is that the leaks provide clues that China is supporting North
Korea's spread of weapons of mass destructions. My point is that the WikiLeaks
are probably having much greater impact in favor of U.S. initiatives than more
traditional press releases that would never be believed in the leftist world if they did
not come out of an "attack" on the United States.

One clue that the second
round of leaks really duped WikiLeaks will be if the U.S. never identifies the
person(s) in the State Department that leaked all this diplomatic correspondence
to WikiLeaks. Perhaps their dancing in the halls deep inside the CIA bunker at
the stupidity of WikiLeaks officials and the Media that bought into this
"disaster" hook, line, and sinker. If Hillary Clinton knew about this in advance
I might even consider voting for her in 2016.

Who knows in the case of
something this vast and this complex? One thing that's certain is that the U.S. is a soft target compared to daring to
leak military and diplomatic secrets of Russia, China, Iran, Israel, and
Pakistan. WikiLeaks wouldn't have the guts to leak secrets of these militant
nations. If the goals are really world peace, let's have transparency on all
sides rather than just one side --- the side that has done more to fight tyranny
than any other nation in the history of the world.

There are villains aplenty in the WikiLeaks
scandal, but nobody looks better for it than Hillary Clinton. The purloined
State Department cables show the secretary of state to be eager and willing
to man up to both the nation's enemies and its faithless "allies" in the
Middle East.

She emerges in the confidential cable traffic as
tough as any man, eager to deal with the Saudis as the unreliable ally they
pretend not to be. In one signed memorandum, she calls Saudi Arabia the
largest source of money for Islamist terror gangs.

"More needs to be done since Saudi Arabia remains a
critical financial support base for al-Qaida, the Taliban ... and other
terrorist groups," she says. She tells her diplomats to get to work to stop
the flow of money from the Persian Gulf to terrorists in Pakistan and
Afghanistan, to get crucial cell phone and credit card numbers. "Donors in
Saudi Arabia constitute the most significant source of funding to Sunni
terrorist groups worldwide." She identifies Qatar, Kuwait and the United
Arab Emirates as other sources of terror financing, and cites Qatar as the
worst offender.

This is the kind of tough talk that diplomats never
use in public -- many of them don't know how to talk this tough even in
private -- and the secretary of state was as abashed as anyone in official
Washington with the WikiLeaks disclosures. Diplomats must be able to speak
freely to each other and to the home office without eavesdroppers.
Nevertheless, embarrassing or not, the cable traffic reveals Hillary as one
of the toughest dudes in an administration of softies. But she clearly
doesn't want to go back to the future.

The secretary of state, who had repeatedly
discouraged talk that she might run for president again, maybe even reprise
her run against Barack Obama, last week came close to taking "a Sherman" --
named for the Civil War general who famously scotched presidential
speculation with his vow that "if nominated I will not run, if elected I
will not serve."

That's been the gold standard of presidential
brush-offs since, and Hillary came close to using it, telling a town hall in
Bahrain, of all places, that her current job is "my last public position."
When she leaves her present job, she wants to "go back to advocacy work."
That's exactly the line of work that was Barack Obama's chief qualification
for president, but if she intended irony she didn't show it.

Hillary sounds and looks weary of the strains of
the job, the constant travel across endless time zones, the lack of sleep
and the reality of playing the political game when someone else writes and
enforces the rules. She took a lot of flak as first lady, much of it
deserved, when she seemed to forget that no one had elected her to anything.

She ran for the Senate as a taker -- she didn't
live in New York and she didn't care that she didn't deserve that, either.
When she got to the Senate, she could at last do as she wanted, at home with
unapologetic liberals and noisy feminists. But as secretary of state, she's
carrying water for someone else not nearly as smart as she is (so she
thinks).

King Abdullah of Saudi Arabia repeatedly exhorted
the United States to "cut off the head of the snake" by launching military
strikes to destroy Iran's nuclear program, according to leaked U.S.
diplomatic cables.

A copy of the cable dated April 20, 2008, was
published in the New York Times website on Sunday after being released by
the whistleblowing website WikiLeaks. The classified communication between
the U.S. Embassy in Riyadh and Washington showed the Saudis feared Shi'ite
Iran's rising influence in the region, particularly in neighboring Iraq.

The United States has repeatedly said that the
military option is on the table, but at the same time U.S. military chiefs
have made clear they view it as a last resort, fearing it could ignite wider
conflict in the Middle East.

The April 2008 cable detailed a meeting between
General David Petraeus, the top U.S. military commander in the Middle East,
and then U.S. ambassador to Iraq, Ryan Crocker, and King Abdullah and other
Saudi princes.

At the meeting, the Saudi ambassador to the United
States, Adel al-Jubeir "recalled the King's frequent exhortations to the
U.S. to attack Iran and so put an end to its nuclear weapons program," the
cable said.

"He told you to cut off the head of the snake,"
Jubeir was reported to have said.

The Saudi foreign minister, Prince Saud al-Faisal,
however, pushed for tougher sanctions instead, including a travel ban and
further restrictions on bank lending, although he did not rule out the need
for military action.

The WikiLeaks documents also show U.S. Defense
Secretary Robert Gates believes any military strike on Iran would only delay
its pursuit of a nuclear weapon by one to three years, the Times reported.

'Iran nuclear program must be stopped'

Saudi Arabia, one of the world's top oil producers,
is concerned about Iran's growing military strength. The United States
announced last month that it plans to sell the kingdom $60 billion worth of
military aircraft to help it bolster its defenses.

Britain's Guardian newspaper, one of a number of
publications to have had access to the leaked diplomatic cables, said the
communications also showed that other Arab allies have secretly agitated for
action against Tehran over its disputed nuclear program.

The Guardian quotes documents that show officials
in Jordan and Bahrain “openly calling for Iran's nuclear program to be
stopped by any means, including military.” The British daily also says
leaders in Saudi Arabia, the UAE and Egypt called Iran "evil," and an
"existential threat" which "is going to take us to war."

Another cable, sent from the U.S. Embassy in
Manama, Bahrain, on Nov. 4, 2009, detailed a meeting between Petraeus and
King Hamad bin Isa al-Khalifa, whose kingdom is the headquarters of the U.S.
Navy's Fifth fleet. Like Saudi Arabia it is a Sunni Muslim-ruled kingdom.

"That program must be stopped," he was quoted as
saying. "The danger of letting it go on is greater than the danger of
stopping it."

Iran denies its nuclear program is a cover to build
a nuclear bomb and says it is purely for peaceful purposes.

A UN Security Council resolution passed in June,
imposing a fourth round of sanctions, renewed a call on Iran to suspend
uranium enrichment, something Tehran has explicitly refused to do, saying
such activity is its right under international law.

The top U.S. military officer, Chairman of the
Joint Chiefs of Staff Admiral Mike Mullen, said in comments released on
Friday that the U.S. military has been thinking about military options on
Iran "for a significant period of time", but he stressed that diplomacy
remained the focus of U.S. efforts.

'Barbarous" is a fair word to describe North
Korea's hour-long bombardment last month of a South Korean island. So what
word best fits the North's principal apologist, protector and enabler—the
People's Republic of China?

The question arises after China's refusal to
condemn Pyongyang's attack, which was of a piece with its earlier
noncommittal view of the North's murder of 46 sailors on a South Korean
gunboat. But it also follows last week's leak of confidential State
Department cables. Those cables reveal a yawning gap between what Chinese
diplomats tell their American counterparts and how China behaves.

*** According to the cables, Chinese officials say
that North Korea's nuclear activities present "a threat to the whole world's
security." They say its missile and nuclear tests are the acts of "a spoiled
child." They pledge good faith in preventing the proliferation of nuclear
weapons and materiel, especially to Iran. They complain that a Chinese
company has been sanctioned by the U.S. without "solid evidence." They
profess sincerity about the six party talks aimed at getting the North to
dismantle its nuclear arsenal.

It's easy to see why Beijing has been keen to humor
the U.S. It was thanks to a November 2000 Clinton Administration waiver of
missile-proliferation sanctions—granted in exchange for a Chinese
nonproliferation pledge—that U.S. companies were allowed to export
satellites to China. That waiver proved premature at best, as the Bush
Administration later sanctioned 30 different Chinese "entities" for
proliferation. Among them were the industrial giant Norinco and the metals
and metallurgy company LIMMT, which former Manhattan D.A. Robert Morgenthau
last year described as "perhaps the largest supplier of weapons of mass
destruction to Iran."

In 2002, CIA Director George Tenet said the
proliferation activities of Chinese firms were at times "condoned by the
[Chinese] government." And as recently as this year, Secretary of State
Hillary Clinton asked Beijing to prevent the sale by Chinese companies of
ballistic-missile components and chemical-weapons' precursors.

China has also played a key role in abetting the
North's proliferation schemes. A November 2007 memo signed by then Secretary
of State Condoleezza Rice complains that shipments of North Korean ballistic
missile jet vanes "frequently transit Beijing on regularly scheduled
flights" but that the Chinese had failed to act on specific information
provided by the U.S. and despite a direct appeal by President Bush to
Chinese paramount leader Hu Jintao.

That pattern of behavior remains unchanged. An
October report by the Congressional Research Service notes that the
"seaborne cargo of North Korean arms seized in Dubai in July 2009 had
visited several Chinese ports and was transported from Dalian, China, to
Shanghai aboard a Chinese ship, again without a Chinese effort to conduct a
search. Overland routes for procurement of WMD-related goods are reportedly
also common, due to the participation of Chinese entities."

The CRS report is also interesting for the light it
sheds on how the Chinese prop up North Korea's Kim dynasty. Resolution 1874,
adopted by the U.N. Security Council last year after the North conducted its
second nuclear test, forbids the sale of luxury goods to North Korea—goods
Kim Jong Il uses to buy off his elites. Yet China exported $136.1 million
worth of such goods to North Korea in 2009, including "160 luxury cars (made
in China) to directors of provincial committees of the Korean Workers Party
and to municipal committee secretaries."

Why the warm embrace? In one of the most
interesting of the leaked cables—a report of a conversation last year
between Lee Kuan Yew and U.S. Deputy Secretary of State James
Steinberg—Singapore's Minister Mentor suggests an answer. "The Chinese," he
said, "do not want North Korea, which China sees as a buffer state, to
collapse. [South Korea] would take over in the North and China would face a
U.S. presence at its border."

Mr. Lee is right that Beijing must make hard-headed
calculations regarding the North: China cannot escape its shared border, and
the effects of the North's collapse would be immediately felt on its side of
the Yalu.

But the interests of "stability" cannot account for
China's role in facilitating the North's proliferation of dangerous material
to the rest of the world. Nor can China's refusal to restrain the North from
fomenting serial crises on the Korean peninsula be explained as the deeds of
a power interested in maintaining a peaceful status quo. The Kim regime's
militarism is destabilizing in Northeast Asia and its proliferation is a
source of global mayhem.

China's support for such a regime for so many years
suggests that Beijing may see strategic benefit in the North's behavior. It
may want a proxy that discomfits its neighbors and makes South Korea and
Japan wonder if they can trust the U.S. defense umbrella. Perhaps some in
the politburo or People's Liberation Army think this is a way that China can
assert its regional authority and drive the U.S. out of the Northeast
Pacific. If so, they are mistaken.

*** From what we can glean from the cables, it's
encouraging to see that the Obama Administration seems to have few illusions
about North Korea and the abetting role played by China. Compared to Mr.
Bush in his second term, this Administration has been relatively tough and
realistic. But if China really is the key to better North Korean behavior,
then Washington will have to confront Beijing more bluntly than it has dared
so far.

Mr. Obama is due to treat Mr. Hu to a state visit
in Washington early next year. We suggest the President cancel the
invitation until Beijing ceases to be Pyongyang's accomplice.

The WikiLeaks de facto declassification of
privileged material makes it case closed: Saddam Hussein possessed weapons
of mass destruction -- and intended to restart his program once the heat was
off.

President George W. Bush, in the 2003 State of the
Union address, uttered the infamous "16 words": "The British government has
learned that Saddam Hussein recently sought significant quantities of
uranium from Africa."

Former Ambassador Joe Wilson sprang into action
and, in an op-ed piece, in effect wrote, "No, the Cheney administration sent
me to investigate the allegation -- and I found it without merit."

Put aside that Wilson's CIA-employed wife, not the
evil Vice President Dick Cheney -- as Wilson implied -- sent him on the
African errand. Put aside that the British still stand by the intelligence
on which Bush made the claim. And put aside that the anti-Bush Washington
Post, in an editorial, concluded that Wilson had lied about not finding
evidence to support the Iraq-in-Africa-for-uranium claim, since he told the
CIA the opposite when he reported back from Africa.

Bush claimed that Iraq sought uranium, specifically
"yellowcake." What is yellowcake, and why would its presence or attempted
acquisition corroborate the nearly unanimous assumption that Saddam
possessed WMD?

The Associated Press called yellowcake "the seed
material for higher-grade nuclear enrichment" and said that it "also can be
enriched for use in reactors and, at higher levels, nuclear weapons using
sophisticated equipment."

"Bush and Iraq: Follow the Yellow Cake Road"
headlined a euphoric Time magazine July 2003 piece -- written when the Bush
administration began backtracking from the Iraq-sought-uranium-from-Africa
claim. Time said no yellowcake equals no WMD equals bogus basis for war.

The article led with this ripper: "Is a fib really
a fib if the teller is unaware that he is uttering an untruth? That question
appears to be the basis of the White House defense, having now admitted a
falsehood in President Bush's claim, in his State of the Union address, that
Iraq had tried to buy uranium in Africa."

Time hoisted (the now discredited) Joe Wilson on
its shoulders as The Man Who Told the Truth to Power: "Just last weekend,
the man sent by the CIA to check out the Niger story broke cover and
revealed that he had thoroughly debunked the allegation many months before
President Bush repeated it." Never mind that the bipartisan Senate
Intelligence Committee concluded that Wilson's report "lent more credibility
to the original Central Intelligence Agency (CIA) reports on the uranium
deal" sought by Iraq in Niger.

Who knows in the case of
something this vast and this complex?
One thing that's certain is that the U.S. is a soft target compared to daring to
leak military and diplomatic secrets of Russia, China, Iran, Israel, and
Pakistan. WikiLeaks wouldn't have the guts to leak secrets of these militant
nations. If the goals are really world peace, let's have transparency on all
sides rather than just one side --- the side that has done more to fight tyranny
than any other nation in the history of the world.

Wouldn't this be clever if the second round of WikiLeaks was really an idea
conceived in Tel
Aviv and executed by the U.S. CIA?

I haven't left my house in days. I watch the news channels incessantly. All the
news stories are about the election; all the commercials are for Viagra and
Cialis. Election, erection, election, erection -- either way we're getting
screwed!
Bette Midler

Whether or not you love or hate the
scholarship and media presentations of the University of Chicago's Milton
Friedman, I think you have to appreciate his articulate response on this
historic Phil Donohue Show episode. Many of the current dire warnings about
entitlements were predicted by him as one of the cornerstones in his 1970's PBS
Series on "Free to Choose." We just didn't listen as we poured on unbooked
national debt ($60 trillion and not counting) for future generations to deal
with rather than pay as we went so to speak! . And yes Paul and Zafer, I know
there may be better alternatives than capitalism as a basis for optimization of
economies in theory. But all economic systems must deal with inherent greed in
practice.
The Grand Old Scholar/Researcher on the subject of greed in economics
Video: Milton Friedman answers Phil Donohue's questions about
capitalism.---
http://www.cs.trinity.edu/~rjensen/temp/MiltonFriedmanGreed.wmv

Landesman wasn't being asked specifically about
negative feelings over the Loveland Museum Gallery in Loveland, Colo., a
taxpayer-funded art space that recently featured a controversial painting with
Jesus Christ receiving oral sex from a man. He's certainly not used to critical
questions about just how this blasphemy-by-numbers seems like a tiresome rerun
-- Jesus in urine, Jesus in chocolate, Jesus in (homo)sexual ecstasy. Brent Boswell, Shock and Awful Art, Townhall, October 22, 2010 ---
http://townhall.com/columnists/BrentBozell/2010/10/22/shock_and_awful_art
Rocco Landesman is the chairman of the National Endowment for the Arts
Landesman does not have the guts to display a similar offensive picture
of Allah

The unemployed,
unlike the rich whom this president has just bowed to, are, in fact, the job
creators.Keith Olbermann on
MSNBC
Jensen Question
Does this mean that we can create 100 million new jobs by laying off 10 million
people? Say what Keith?

It's probably a time when accounting professors and students should have more
scholarly debates on comprehensive tax reform alternatives. Such debates should
be civil and as well-informed as possible. Tax reforms could possibly have an
enormous impact on the accounting profession in terms of tax services, course
content, employment alternatives for graduates, software development, AIS
content, and scholarly research reported in accounting and tax journals.

Jensen Opinion
The conservative right always has knee jerking opposition to increased taxes and
new taxes of any kind. The liberal media objects to increasing burdens on the
middle income class and labor. Nancy Pelosi has already commenced all out war
against the deficit commission's preliminary recommendations. Democrats,
Republicans, and everybody else agree that the incomprehensible tax system of
the United States needs to be drastically reformed but Congress probably will
never agree to drastic reforms. Trying for comprehensive tax reforms will be an
absolute political dogfight.

Personally, I lean toward
eliminating the corporate income tax entirely and replacing the personal income
tax code with a flat tax. But in order to keep the flat tax rate relatively low,
I support introducing a Value Added Tax (VAT) sales tax that is now common in
other parts of the world, especially in Europe. Businesses in the U.S. will
fight a VAT tax tooth and nail, and the VAT tax will seriously increase prices
of consumer and industrial goods. But serious deficit reductions cannot be
financed without pain and sacrifice in all economic sectors These are my
personal thoughts and are not all included in the Co-Chair's Report..

More importantly, the VAT tax
should be the primary tax that is used to gradually put Social Security,
Medicare, Medicaid, and the new "Affordable" Health Care law on a pay-as-you-go
basis that no longer will keep piling on to deficits and unfunded entitlements.
These are my personal thoughts and are not all included in the Co-Chair's
Report..

But the most important thing
to do immediately is to extend the retirement age to current average life
expectancy averaged across race and gender categories. Persons that elect early
retirement should take a heavy hit in benefits and not be eligible for Medicare
before reaching the established retirement age.

Of course any increases in
taxes will probably slow economic growth. But the insanity of simply printing
money (read that buying back Treasury notes by the Fed) and borrowing that
increases deficit by well over a trillion each year will eventually destroy the
the economy and standard of living of the entire United States --- http://www.trinity.edu/rjensen/entitlements.htm

The chairmen
of President Obama's bipartisan deficit commission on Wednesday offered an
aggressive plan to rebalance the federal budget by curbing increases in Social
Security benefits, slashing spending at the Pentagon and other agencies, and
wiping out more than $100 billion a year in popular tax breaks for individuals
and businesses.

The blueprint drafted by former Clinton White House chief of staff Erskine
Bowles and former senator Alan K. Simpson (R-Wyo.) would slice more than $3.8
trillion from deficits over the next decade, reversing a rapid run-up in the
national debt that many fear has the country headed for crisis.

To meet that goal, Bowles and Simpson are proposing to slay a herd of sacred
cows, including the tax deduction for mortgage interest claimed by many
homeowners, the tax-free treatment of employer-provided health insurance and the
practice of letting retirees claim Social Security benefits starting at age 62.
The blueprint would raise the early retirement age to 64 and the standard
retirement age to 69 for today's toddlers.

During a briefing for reporters, Bowles and Simpson stressed that the plan is
theirs alone and acknowledged that it is unlikely to win support from a majority
of the commission's 18 members, many of whom seemed startled Wednesday by its
breadth and scope. Bowles called it "a starting point" as the panel attempts to
forge an agreement by Dec. 1.

Obama, speaking Thursday at a news conference in Seoul where he is attending the
G-20 conference, cautioned that "before anybody starts shooting down proposals,
I think we need to listen, we need to gather up all the facts."

"If people are, in fact, concerned about spending, debt, deficits and the future
of our country, then they're going to need to be armed with the information
about the kinds of choices that are going to be involved, and we can't just
engage in political rhetoric," the president said.

"I set up this commission precisely because I'm prepared to make some tough
decisions," Obama said, adding that "I'm going to need Congress to work with
me."

Balanced-budget advocates praised the seriousness of the effort, saying it has
the potential to reframe the debate over taxes and spending that dominated this
month's congressional elections, regardless of how many commission members
ultimately support it.

"A White House commission has put out a credible plan to eliminate the deficit
and debt. This has changed the rules of the game and, for the first time, things
are serious," said Maya MacGuineas, president of the bipartisan Committee for a
Responsible Federal Budget, who hailed the blueprint as "a breakthrough."

"After this," she said, "the debate simply cannot go back to silly games where
people pretend that eliminating earmarks will solve the problem."

Still, the reaction was harsh in some quarters, particularly among liberals who
have vowed to protect retirees from any reduction in benefits. House Speaker
Nancy Pelosi (D-Calif.) called the plan "simply unacceptable."

Speaker-in-waiting John A. Boehner (R-Ohio) declined to comment, saying he would
discuss the plan with his three representatives on the panel. But Republican
anti-tax activist Grover Norquist was not happy and warned that Republicans who
support the proposal would be breaking their pledge not to raise taxes.

Continued in article

Jensen Comment
Many far more hostile reactions are pouring forth to support Pelosi's resistance
plan. It's unlikely that a sharply divided House versus Senate over the next two
years will accomplish a single recommendation in the deficit commission's
preliminary report. Much depends on reducing the Congressional divide in the
2012 election, and at this point we don't know whether the 2013 Congress will be
sipping on tea or vodka.

We've been expecting to dislike the report of President Obama's deficit
commission, so count us as pleasantly surprised by the draft outline released on
Wednesday by its two chairmen. There's plenty to oppose but also something for
the next Congress to build on, not least the plea for a more efficient,
competitive tax code.

Neither Democrat Erskine Bowles nor Republican Alan Simpson are trusted by their
respective parties these days, so the duo seem to have decided to roil
everybody. Fair enough. Even if their proposals fail to gain the 14 commission
votes out of 18 needed for a consensus judgment by December 1, they've at least
shown that restraining the federal Leviathan is possible.

Before we pound the details, it's important to understand why we have had
deficits of 10% and 8.9% of GDP for the past two years, with another 10% or so
anticipated in fiscal 2011. The most important reason is the burst of spending
from the 111th Congress that has taken federal outlays as a share of GDP to 25%
in 2009, 23.8% in 2010 and back to an estimated 25% in 2011. This is unheard of
in the modern era, when the average has been under 21%.

The second reason is a revenue shortfall due to the recession and feeble
economic recovery. Revenues have averaged about 18.5% of GDP in recent decades,
but in 2009 and 2010 they were only 14.9% with little improvement expected this
fiscal year. The single least painful way to reduce the deficit is to get the
economy growing at a healthy pace again, which would cut the deficit by 3.5% of
GDP a year without a dime of spending cuts.

This is where the chairmen's draft is both wrong and useful. Its mistake is
proposing new taxes—notably on Social Security payroll taxes—that it claims
would raise revenues as a share of GDP to no more than 21%. But this is an
accountant's-eye view of taxation. The conceit is that Washington can raise
taxes and, voila, revenue will follow on demand. But revenue will only follow if
the economy grows, and higher taxes will restrain growth to some extent,
depending on the timing and incidence of the tax increases.

The chairmen are on better ground arguing for fundamental tax reform that would
swap lower rates for fewer loopholes and "tax expenditures." On the latter, the
draft is right to put the mortgage interest deduction on the table, as taboo as
that is in Washington. If we've learned anything from the last decade, it ought
to be that our many housing subsidies have led to a misallocation of capital
with few benefits. Canada has no such deduction but a higher rate of home
ownership.

Ditto for the employer deduction for health insurance, which costs some $200
billion a year and has also distorted incentives by creating a system of
third-party payments. Individuals who bear little responsibility for their
health-care expenses have little incentive to reduce costs, much less lead a
healthier life-style that would save money over time. Refocusing this tax
benefit on the needy while encouraging wealthier consumers to economize would
help health markets and the federal budget.

The chairmen also take aim at the corporate tax rate, proposing in one option a
reduction to 26%. Everyone to the right of MoveOn.org knows that the 35%
corporate tax rate is a disincentive to invest in America and has sent
businesses pleading to Congress for this or that loophole. This is the second
Obama-appointed outfit to recommend a cut in the corporate tax rate, following
Paul Volcker's economic advisory group this year, and it ought to be one basis
for bipartisan agreement.

The draft also proposes spending cuts, albeit far too timidly. Its discretionary
spending proposals would take outlays down only to 2010 levels, though
Republicans have already promised to take them back to 2008. We wonder if this
is a bow to Democrats who think that spending at 25% of GDP should be the new
normal.

More egregiously, the chairmen tiptoe around ObamaCare, which has led some on
the right and left to claim that the commission is essentially endorsing the
largest new entitlement in 40 years. We're told the chairmen mostly dodged the
subject because Democrats on the commission made that a nonnegotiable demand. A
truly bold report would consider Congressman Paul Ryan's model to make Medicare
a defined contribution program. Instead, the chairmen settle for the familiar
likes of "payment reforms," which never work because of Medicare's flawed
political price-control model.

Medicaid also gets a near total pass, probably because ObamaCare is expanding
that program more than at any time since its inception in 1965. Worse, the
federal Medicaid formula rewards states for spending more. If the commission's
goal is to spur debate, it ought to propose making Medicaid an annual block
grant that would force state politicians to better manage what is often the
biggest expense line in their budgets. The status quo will lead to huge state
tax increases over the next two decades.

The chairmen are braver on Social Security, though again not brave enough. They
propose to raise the retirement age for receiving full benefits to 68 from 67
by—brace yourself—2050, and 69 by 2075. For context, consider that the average
American woman born today will live to be 80.

The draft also suggests a payroll tax increase, in particular on
upper-middle-class earners, even as it proposes to cut their benefits to a
greater extent than lower earners. Republicans should rule out a tax increase,
while accepting that some benefit cuts on the basis of need will be required.

Mr. Obama conceived the deficit commission as a form of political cover for his
spending blowout—and to coax Republicans into a tax increase. So it's notable
that Democrats and liberals have been more critical of the chairmen's draft than
have Republicans. Having put the U.S. in a fiscal hole, Nancy Pelosi's minority
wants to oppose all spending cuts or entitlement reform to climb out.

House Republicans should react accordingly, which means taking what they like
from the commission report and making it part of their own budget proposals. If
Senate Democrats and Mr. Obama want to regain any fiscal credibility, they'll be
willing to listen and talk. If not, the voters will certainly have a choice in
2012.

Jensen Comment
Meanwhile the United States will continue to both print more money supported by
neither taxes nor borrowing plus continued to borrow over a trillion dollars
each year to finance the cash flow deficit differences between what the
government takes in in revenue and what the government pays out. At this point
voters are simply numb to the difference between a billion dollars and a
trillion dollars, but in terms of economic survival the difference is crucial.

I have been arguing on this blog and elsewhere that
the best approach now is for Congress and the president to concentrate on
increasing long-term economic growth (see my post on 11/07 for an agenda for
growth). This would require low taxes on investments, encouragement to basic
R&D, and sharp reductions in expected government spending, especially on
social security retirement income and Medicare and Medicaid. Tax revenue
would also have to increase, and this could be accomplished through widening
the tax base, such as by eliminating the tax exemption on mortgages, by
flattening out income tax rates, and perhaps also by adding a value added
tax.

Many in China and elsewhere believe the US economy
is too sick to be cured. I do not agree, but recovery would require some
unpalatable medicine with regard to spending and taxes, somewhat along the
suggested by the recent majority-backed Report of the National Commission on
Fiscal Responsibility and Reform. Unless the US takes serious actions to
promote its long-term growth, the next decade may be a very difficult one.

Continued in article

December 11 message from Bob Jensen

Hi Zafar,

In all my years in the academy I've never seen a direct Ronald Reagan
quote blaming poverty on laziness, although virtually all economists
including Karl Marx, admit that many of the unemployed are incapable for one
reason or another of holding down jobs. The problem has become more acute
with the spread of drug addiction that harms the productivity of many
workers. If Reagan really said this it would be a stupid remark since some
of our poorest people like hotel chambermaids and taxi drivers are examples
on non-laziness.

You fail to look into more credible theories of why we have unemployment and
will continue to have unemployment in virtually all the nations of the
global economy. One of the best places to begin, in my opinion, is in the
writings of Arthur Lewis ---
http://en.wikipedia.org/wiki/Arthur_Lewis_(economist)
.
Even Karl Marx attributed much of the cause of unemployment to
overpopulation. Arthur Lewis provides a rather clear theory that the wage
rates in industrialized nations will always remain low because of the
"unlimited supply" of global subsistence-level labor. Laziness has little to
to with the major problem of unemployment. It has more to do with the
oversupply of labor coupled in modern times with vastly improved
communication and transportation systems. Now when I have a problem with my
new computer a Dell technician in India is on the other end of the phone
helping me.

In 1954, when Lewis wrote his most famous theory, there were 2.8 billion
people back in the wonderful 1950s (when I was literally enjoying every
moment of high school). Now we're living in a world of 7 billion where jobs
are easily transported to India, Indonesia, Africa, Mexico and all other
points south of the Rio Grande.

We will soon have technology capable of assembling automobiles with one
worker who turns the factory switch on or off. It's analogous to the
evolution of replacing 5,000 1940 telephone switchboard operators in
Cleveland with automated switchboards. All this is taking place while the
world population more than doubled between 1950 and 1990. There's one highly
automated factory in China that now produces over a third of the foot socks
sold in the world.

When I was a kid, a farm family in Iowa could make a good living on 80 acres
of land. That same family probably cannot make good living on less than 240
acres of land in Iowa and even 240 acres is too small for the farming
capacities of modern farming machinery designed to work 2,000 or more acres
of land with one or two farmers.

Now we're witnessing the decline of the newspaper and magazine industry due
to an explosion of faster and more innovative ways of communicating local
and global news.

The problem becomes ever more acute as we keep producing more people faster
than jobs for those people. There are a few positive signs such as the fact
that the rate of growth in population is slowing even if the growth itself
is still upward.

I don't think Reagan ever blamed the bulk of poverty on laziness. If
anything poverty is caused by teens and adults who are too ambitious in
producing children relative to the finite resources of this planet. Of
course there are many ways we can support population growth by better
utilizing and preserving the most crucial resources like fish in the sea.

I think Arthur Lewis was correct about the true causes of unemployment and
poverty --- the problem is too many of us creating an unlimited supply of
labor.

“We have started an adult conversation that will
dominate the debate until the elected leadership here in Washington does
something real.”

So claimed Erskine Bowles, co-chairman (along with
former Sen. Alan Simpson) of President Barack Obama’s commission on federal
deficits and debt, last week.

The feeling that Americans and their
representatives in Congress were ready for serious “adult” work on reducing
deficits and debt lasted about three days, from last Friday’s final fiscal
commission meeting to Monday’s announcement by Obama of a $900 billion
accord with congressional Republicans to extend tax cuts and embark on a
round of new spending.

"I'm deeply disappointed that we have this
short-term deal and it's not linked to long-term fiscal restraint," Bowles
said Wednesday.

On Thursday morning after he and Simpson met at the
White House with Budget Director Jack Lew and Treasury Secretary Tim
Geithner, they issued a statement calling on Obama to launch negotiations
with congressional leaders from both parties "on the critical next step of
establishing a serious fiscal responsibility plan" and to unveil his own
deficit cutting proposals in his State of the Union address, building on the
ones in last week's Bowles-Simpson report.

Long-term debt problem
The long-term budget prospects remain as stark as they were before Obama
announced his deal with the GOP leaders.

According to the Congressional Budget Office, the
ten-year budget forecast is for continued budget shortfalls, extraordinarily
high national debt (compared to previous decades), and higher interest
payments to service that debt — to the point that CBO predicts that by 2016
interest payments will be larger than military spending.

When debt service exceeds military spending, says
Harvard historian Niall Ferguson, it has historically been the tipping point
where a great empire or nation ceases being great.

Why did the feeling that America was ready for
serious debt reduction evaporate so quickly?

One reason may be that members of Congress don’t
believe that the United States could suffer a sovereign debt crisis as
Greece and Ireland are undergoing.

“I think it’s true that a number of people just
don’t buy it, because we still are different than Greece and Ireland,” said
Maya MacGuineas, president of the bipartisan Committee for a Responsible
Federal Budget.

“They can’t believe that the debt problems could
actually come here," she said. "I think a number of other people think,
‘maybe I do buy it but it isn’t worth the sacrifice of actually changing
things.’ But I think most people don’t quite buy it — and the worrying thing
is that people who buy it the most are the financial people, the people who
are managing money.”

Stopping momentum for debt reduction MacGuineas
said the tax and spending deal that Obama announced Monday night did seem
“surreal” coming as it did on the heels of the Bowles-Simpson plan. “It
stops the momentum that we should have started last week with the
Bowles-Simpson.

If you believe that this is going to happen, then
you also believe Nancy Pelosi is the tooth fairy. Medicare reimbursements
paid to doctors are scheduled to drop 30% over the next three years. Doctors
already complain about low Medicare fees – and how it is just a cost shift
to private insurance carriers – but it gets worse. By 2019, Medicare fees
are scheduled to drop below Medicaid reimbursements, and by 2050 Medicare
payments will fall to 50% of the private sector. At these rates, most
doctors will undoubtedly opt out of the system, further limiting the access
and quality of medical care for senior citizens. Of course, this is all
predicated on the revised reimbursement rates actually getting through
Congress – which hasn’t happened in any of the last ten years.

One of the reasons the U.S. Chamber of Commerce
opposes repeal is that the bill requires almost all employers to provide
health insurance to even out the playing field. That is a mirage. There are
penalties for not providing insurance, but they are estimated to be
one-sixth of the cost of insurance. Thus, instead of more people having
employer-provided insurance, there will certainly be less. The number of
employees who will lose their coverage ranges from the Congressional Budget
Office (CBO) calculation of 9 million to the estimate of a former CBO
Director of 35 million – over 11% of the entire population! More people will
be on the government rolls – which is exactly what the Democrats want to
happen - as they force-feed us to a single-payer health care system.

Here is one of the truly spiritual revelations of
this plan. Subsidies will be provided to uninsured employees by the
government (or their employer) based on the employee’s income. But that
would be the employee’s “family income,” not his/her wages. This means that
the government will require every employee receiving subsidies to provide a
copy of their tax return to their employer or insurance exchange to prove
the “family income.” Yes, you read it right – this act not only allows the
Department of Health and Human Services to look at your tax return, but it
requires insurance exchanges and employers as well.

You will now have to attach to your tax return
proof that you carry health insurance, or suffer penalties if you don’t.
Your return will also indicate the amount of your subsidy, and, if God
forbid you have previously been paid too much, the Feds will either seize
your refund or send you a bill for the difference. It’s easy to foresee lots
of money being lost in that shuffle, and lots of people receiving
threatening letters from their favorite government agency – the IRS.

As for the sanctity of marriage, there is none.
Because there is already a marriage penalty built into the tax code, you
would think that the people who wrote this bill would make sure to avoid the
same problem. But no – this plan awards higher subsidies for two single
people than one married couple. Yet again the government discourages
marriage. Does anyone wonder why 40% of Americans don’t believe in marriage
when Washington penalizes it in your taxes and health care?

The treasure trove of insanity that’s contained in
this legislation will ultimately appall and disgust the overwhelming
majority of Americans. We clearly remember that this bill was only passed
with Congressional shenanigans, bribes to wavering Senators, and the
pathetic sellout of the Stupak Democrats, all of whom (except one) are now
out of office. We all must work to make sure that those 159 (or 183)
agencies don’t ever see a single dollar of funding, don’t ever start hiring
a staff, and above all, don’t ever get the opportunity to destroy whatever
sense of individuality we have left in this country.

Note: 222 companies and unions have opted out of
ObamaCare, wouldn’t you like to also?

The public choice school of economics describes how
the government and special interests collude against the public good, and
it's hard to think of a better model than the ethanol industry. Despite
opposition from an emerging left-right anti-boondoggle coalition, the Senate
version of the White House-GOP tax deal preserves the corn fuel's multiple
subsidies.

One measure of ethanol's political clout is that
reformers merely hoped to cut the tax credit for blending ethanol into
gasoline to 36 cents per gallon from the current 45 cents that was due to
expire at the end of the year. Instead, the deal keeps the full subsidy in
place for another year, at a cost to taxpayers of $4.9 billion, and it
retains the 54-cent per gallon tariff on ethanol imports that was also
expiring.

Direct subsidies and trade protectionism, plus
mandates that force consumers to buy ethanol: This is the trifecta of
government support, and all for an industry that is 30 years old and that
even Al Gore now admits serves none of its advertised environmental
purposes.

The ethanol extension is the bipartisan handiwork
of Iowa Senators Chuck Grassley and Tom Harkin, who both regularly abandon
their professed principles (fiscal conservatism for the Republican and
equity for the Democrat) in the service of agribusiness.

Discredit also goes to the environmental lobby and
its running game of bait and switch. The greens
have turned on ethanol because of its carbon emissions, but their tax bill
support has also been purchased with extensions of such energy subsidies as
a Treasury grant program for wind and other renewable projects that were
part of the stimulus.

The greater political risk here is for Republicans,
who should worry that the tax bill is turning into a special interest
spectacle. The bill revives a $1 a gallon biodiesel tax credit at a cost of
nearly $2 billion, and there's $202 million for "incentives for alternative
fuel," $331 million for a 50% tax credit for maintaining railroad tracks,
and so on. These credits are a form of special interest spending via the tax
code, which is precisely the business as usual behavior that Republicans
told tea party voters they wouldn't engage in.

These business subsidies are grease for Senate
votes in favor of the deal, so the only chance to remove them would be the
kind of public outcry that attacked the Cornhusker Kickback and other
ObamaCare fiascoes. Call these ethanol favors the Hawkeye Handouts.

In the midst of the current crisis—with the dollar
having collapsed to barely more than a 1,400th of the value of an ounce of
gold, the United Nations calling for a new world currency and Ben Bernanke
becoming a political punching bag for the "quantitative easing" that critics
fear will ignite inflation—we now have a book containing the secret diaries
of the chairman of the Federal Reserve Board during Richard Nixon's
presidency, a time of turmoil in currencies and markets and of policies that
haunt our economy to this day.

Arthur Burns, the pipe-puffing ex-Columbia
professor who served as Fed chairman under Presidents Nixon, Ford and
Carter, turns out to have kept a diary between 1969, shortly before he
became the 10th chairman of the Fed, and 1974, when President Nixon
resigned. The diary was given by Burns's widow, Helen, to the Gerald Ford
Presidential Library and released for publication in 2008. The scoop—
"Inside the Nixon Administration: The Secret Diary of Arthur Burns"—is
edited by Robert H. Ferrell, a scholar of American history.

The diary covers five of the most astounding years
in monetary history. They encompass the collapse of the Bretton Woods
system, under which foreign governments could redeem their dollars with our
government for gold; the closing of the gold window, ending such
convertibility; the imposition of wage-and-price controls, supposedly to
stanch inflation; and an import surcharge. They saw the failure of the
Smithsonian Agreement, an attempt to stabilize things by devaluing the
dollar, and then the beginning of the great inflation, during which the
dollar lost much of its value, falling, by early 1980, to less than an 800th
of an ounce of gold from the 35th of an ounce it had been set at under
Bretton Woods.

Burns's "secret diary" isn't likely to make big
headlines in this era of WikiLeaks. Nor is it intended to offer a complete
or coherent narrative of these events. But for those with an eye on today's
monetary debate, it is a little gem of a volume, offering brief,
occasionally trenchant, sometimes galling insights, with lots of waspish
comments about various figures within and around the White House. These
start with the president himself, who, in the early entries, is treated in
warm and respectful terms.

When he is still serving as a presidential
counselor, just ahead of his Fed appointment, Burns writes of Nixon: "He
clearly likes his job. He wants to be a good president, really a president
of all the people. I can hardly recall a single partisan utterance." But by
the middle of the book he is writing: "The President's preoccupation with
the election frightens me. Is there anything he would not do to further his
reelection? I am losing faith in him, and my heart is sick and sad."

On members of the administration Burns can be
caustic. Henry Kissinger is "admittedly ignorant of economics." John
Connally, who for part of the period is Treasury secretary, is "a thoroughly
confused politician." George Shultz, who would follow Connally at Treasury,
is described as "a no less confused amateur economist," though he rises in
Burns's estimation as the years go on.

Not that Burns comes out much better, even in his
own view. At one point he writes, in the diary's clipped prose, that he is
"the only one there with any knowledge of the subject, but even I not a real
expert on some aspects of the intricate international problem!" So it turned
out. He seems throughout his own diary to grasp that inflation is not the
way out of America's underperforming economy but to be unable—even as
chairman of the Fed—to put his foot down.

At the time there were observers outside the White
House—not least Henry Hazlitt, a New York Times editorial writer in the
1940s—who had warned from the beginning that Bretton Woods as a system was
inherently inflationary and, not to put too fine a point on it, doomed.
"Inside the Nixon Administration" gives the impression that, when it came to
monetary policy, Nixon, Shultz, Connally and Burns himself were but corks on
the water, carried along by economic forces larger than themselves.

If Burns's diary is a guide, none of these figures
thought about money in terms of the Constitution. There is no reference here
to the fact that the Founders thought of the dollar as a fixed amount of
silver or its free-market equivalent in gold. Nixon and Burns let go of the
American currency in a series of small decisions. At one point the chairman
of the Federal Reserve writes that he would be for a price freeze—"but only
for 30 days."

Burns comes off as relatively conservative figure,
but also weak. "My efforts to prevent the closing of the gold window—working
with Connally, [Paul] Volcker, and Shultz—do not seem to have succeeded," he
writes on Aug. 12, 1971, three days before the event. "The gold window may
have to be closed tomorrow because we now have a government that seems
incapable, not only of constructive leadership, but of any action at all.
What a tragedy for mankind!"

So here were are now in a new crisis, with a
different chairman at the Fed, preparing to pump hundreds of billions of
dollars into the economy as part of a desperate effort to boost demand and
keep the economy from going back into recession. One wonders whether Ben
Bernanke is keeping his own "secret diary." Burns's was kept in two spiral
notebooks, one of which, this volume tells us, cost 49 cents. Today similar
notebooks are listed at Staples.com at $5.49. They are similar, at the
moment, to the Federal Reserve's one-dollar bills—worth but slightly more
than the paper they're printed on.

I apologize that the tidbit below appears to be political. I do so however,
in the spirit of what I consider to be the Number 1 Rule of Our Academy ---
Owning Up to Mistakes. It provides an illustration that we might pass along to
our students.

It takes a big person to admit advocating something in total error
I had almost zero respect for Nobel Prize winner Al Gore's persistent advocacy
of corn ethanol that takes more energy to produce than is gained.
Ethanol purportedly generates
twice as much
ozone as gasoline in traditional combustion engines and is very expensive to
transport.

Members of the Academy all do not admit mistakes, but my respect for
teachers/researchers increases when they publically admit to their own errorsAl Gore is
not a card carrying member of the Academy, but he just did a very academic
thing.
I'm still not in Al Gore's for a number of reasons, but I do like to give credit
where credit is due.

Anyone who opposes ethanol subsidies, as these
columns have for decades, comes to appreciate the wisdom of St. Jude. But
now that a modern-day patron saint—St. Al of Green—has come out against the
fuel made from corn and your tax dollars, maybe this isn't such a lost
cause.

Welcome to the college of converts, Mr. Vice
President. "It is not a good policy to have these massive subsidies for
first-generation ethanol," Al Gore told a gathering of clean energy
financiers in Greece this week. The benefits of ethanol are "trivial," he
added, but "It's hard once such a program is put in place to deal with the
lobbies that keep it going."

No kidding, and Mr. Gore said he knows from
experience: "One of the reasons I made that mistake is that I paid
particular attention to the farmers in my home state of Tennessee, and I had
a certain fondness for the farmers in the state of Iowa because I was about
to run for President."

Mr. Gore's mea culpa underscores the degree to
which ethanol has become a purely political machine: It serves no purpose
other than re-electing incumbents and transferring wealth to farm states and
ethanol producers. Nothing proves this better than the coincident
trajectories of ethanol and Mr. Gore's career.

Continued in article

Farm lobbies in the United States have succeeded in putting barriers up
to importation of sugar cane ethanol from places like Brazil to protect the
interest of corn growing agribusiness.

Jensen Comment
This does not necessarily mean that all ethanol in general is a totally bad
idea. Producing sugar cane ethanol seems to have more benefits than cost in
Brazil relative to corn ethanol which experts tell us has more cost than
benefit. Apparently sugar cane is a better source of ethanol and Brazil has vast
amounts of sugar cane and very little oil in production.

Sugar cane not only has a greater concentration of
sucrose than corn (by about 30%), but is also much easier to extract. The
bagasse generated by the process is not wasted, but is used in power plants
as a surprisingly efficient fuel to produce electricity

. . .

One problem with ethanol is that because it is
easily miscible with water, it cannot be efficiently shipped through modern
pipelines, like liquid hydrocarbons,
http://en.wikipedia.org/wiki/Ethanol

Research should proceed full bore ahead to make cheaper and/or better fuels
of all types. But even Al Gore admits that the sign our our pumps that reads "10% Ethanol" is all politics and not science.

Federal Reserve Chairman Ben Bernanke's $600
billion quantitative easing program has been roundly criticized in this
country and around the world. So why is he doing it? Does he know something
the rest of us don't?

Mr. Bernanke claimed earlier this month in a
Washington Post op-ed that "higher stock prices will boost consumer wealth
and help increase confidence, which can also spur spending." But, as Mr.
Bernanke must know, the Japanese have been trying to influence their stock
market for 20 years, with little effect on their economy. It is also
unlikely, as some claim, that the Fed chairman is whipping up a stealth
stimulus or orchestrating a currency devaluation. He knows these have been
tried and are more likely to destroy jobs than create them.

I have a different explanation for the Fed's latest
easing program: Without another $600 billion floating through the economy,
Mr. Bernanke must believe that real estate (residential and commercial)
would quickly drop, endangering banks.

The 2009 quantitative easing lowered mortgage rates
and helped home prices rise for a while. But last month housing starts
plunged almost 12%. And in September, according to Core-Logic, home prices
dropped 2.8% from 2009. Commercial real estate values are driven by
job-creation and vacancy rates, both of which are heading the wrong way.

Because of unexpectedly bad construction loans, the
staid Wilmington Trust was sold to M&T Bank earlier this month in a rare "takeunder"—what
Wall Street calls a deal done below a company's stock value, in this case by
40%.

In other words, real estate is at risk again. But
Mr. Bernanke would create a panic if he stated publicly that, if not for his
magic dollar dust, real estate would fall off a cliff.

In a normal economic recovery, the stock market
rises in anticipation of higher corporate profits. Companies then use their
higher stock prices to raise capital and hire workers, who buy homes and
remodel kitchens.

Before growth can occur, however, we have to fix
what caused a recession in the first place. Often that means drawing down
inventory that built up in the last boom, or tightening credit to whip
inflation, as then-Fed Chairman Paul Volcker did in 1981. In late 2010,
though, we still have banks overstuffed with toxic real estate loans and
derivatives. But what about the trillion in bank reserves sitting at the Fed
and earning 0.25% interest? Why isn't it being lent out? Perhaps because
it's needed to offset unrealized losses on these fouled loans.

Like it or not, banks are still weak, and another
panic may be on its way. Bank of America is the best example. As of Sept.
30, its balance sheet claimed a book value (assets minus liabilities) of
$230 billion. But the stock market values the company at just $118 billion.
Who's right? Usually the stock market is ahead of bad news and write-offs.
Citibank is selling at 20% below its book value. The market wasn't gloomy
enough on Wilmington Trust—hence the takeunder.

Mr. Bernanke is clearly buying time with our
dollars. If real estate drops, we're back to September 2008 in a hurry. On
Wednesday, the Fed announced that all 19 banks that underwent stress tests
in 2009 need to pass another one. This suggests central bankers are nervous
about real-estate loans and derivatives on bank balance sheets. In 2009,
even with TARP money injected directly into their balance sheets, banks
faced a $75 billion capital shortfall. Mr. Bernanke orchestrated a stock
market rally so they could sell equity for much needed capital.

My sense is the stock market is less likely to
cooperate this time. Since the QE2 announcement, the Dow is down 254 points
and bond yields have backed up, exactly the opposite of what Mr. Bernanke
was trying to achieve. If the latest boost doesn't work, we may see real
estate seek its true lower value, causing a sell-off of bank stock that
requires them to begin paying more for short-term debt.

The Fed may have to act quickly. It can't reprise
the 2009 bailouts, which failed when banks wouldn't sell their distressed
mortgage-backed securities because they didn't have enough capital to stay
solvent. No politician would agree to bailouts anyway. This time, the Fed
should do what it didn't do in 2008-09: detoxify and recapitalize the big
banks. The Dodd-Frank banking reform provides the authority for the Fed and
the Federal Deposit Insurance Corp. (FDIC) to do this.

Think of it as what the FDIC does on Fridays
(taking over failed banks), but on a huge scale. First, guarantee deposits
so lines don't form at branches, and provide short-term loan guarantees as a
backstop to short-term lenders. Then move the toxic debt onto the balance
sheets of the FDIC and the Fed, and refloat the banks with fresh capital to
open on Monday morning. Also, fire management. And get the banks public
again so that the market can properly value them and provide an early
warning of bad loan portfolios.

All that's missing is a mechanism to make sure
foreclosures continue in a fair and measured way so real estate prices stay
accurate. But the freshly capitalized banks, free of nonperforming loans,
will help fund an economic recovery. The stock market will fly based on
prospects for future corporate profits, rather than on unsustainable Fed
goosing.

As commercials for Fram oil filters used to say,
"You can pay me now or pay me later." In our case today, "pay me later" is a
perpetuation of weak banks, substandard growth, persistent unemployment and
stymied productivity. Better to do takeunders of banks now than to hire an
undertaker for the whole U.S. economy later.

Mr. Kessler, a former hedge-fund manager, is the author of "Eat
People—And Other Unapologetic Rules for Game-Changing Entrepreneurs," due
out from Portfolio next February.

In the near term, this commodity boom is wonderful
news for the rural Midwest. Rising grain and land prices flow through the
larger agricultural economy, with farm equipment manufacturers, seed and
fertilizer companies and rural financial services all along for the ride.
Everyone feels great, no one wants it to end, and analysts offer
explanations for why, this time, the price increases are permanent. Chinese
demand!

The problem comes if the boom is an artificial,
money-fed bubble. The mid-2000s witnessed a similar euphoria over U.S.
housing, with the Fed also declaiming that the boom was rooted in a natural
growth in demand from immigration and younger families. We know how that
turned out.

The Farm Belt has seen its share of booms and busts
over the decades, many rooted in the vagaries of monetary policy, as land
prices crashed and bankruptcy waves rolled over the land. John Cougar
Mellencamp sponsors a "Farm Aid" concert, and taxpayers are hit up for a
bailout.

As damaging, overeasy monetary policy and
government subsidies (ethanol) distort investment flows and lead to a
misallocation of capital. When a money boom chasing this or that asset
bubble is followed by bust, hundreds of billions of dollars are lost that
could have been invested in more productive purposes—say, biotechnology,
telecom or new roads. As we're learning after the housing bust, it can take
years to work through the economic wreckage.

We hope Fed Chairman Ben Bernanke is right when he
says asset bubbles and price spikes in commodities are nothing to worry
about. Of course, he said the same thing about housing and oil in the last
decade. We're not predicting an imminent bust, but we do hope someone at the
Fed is watching prices grow in farm country.

Oops! Those so-called "assets" should've been placed on the right hand
side of the balance sheet.
Don't put your "trust" in the U.S. Congress
It's a little like taking money from your safety deposit box and writing your
self IOUs to someday put your money back in the box
In the case of Social Security trust funds the government owes itself $2.5
trillion
It's time for the Fed to turn the crank on bigger bills in the printing presses
--- 600 $1billion dollar bills just won't cut it Ben

Proposals to fix the deficit are coming fast and
furious in Washington these days. One major target: Social Security.

Whether you favor cutting Social Security may
depend on how you view the Social Security trust funds, which currently
contain $2.5 trillion for retirement benefits. That's $2.5 trillion that,
according to some people, don't actually exist.

Here's the back story.

If you look at your paycheck, in the spot where it
lists deductions, there's a line that says "FICA." That's the money that
gets taken out of your check to pay for Social Security.

For the past 25 years or so, the amount of money
the government has raised through those taxes has been greater than what
it's been spending to fund Social Security.

The surplus came largely from the baby boomers —
and we're going to need that extra money when they retire and start
collecting Social Security.

This is where the $2.5 trillion trust funds come
in.

The government has invested all that money in
Treasury bonds, which are traditionally considered among the safest
investments in the world.

But a Treasury bond, remember, is the way the
government borrows money. So the government is lending the Social Security
surplus to itself. And the obligation to repay those loans is the trust
funds.

"They are nothing like any trust fund that any one
of us would think of," says Maya MacGuineas of the New America Foundation.
"It conjures up an image of really holding savings, and it doesn't do that
at all."

But there's another way to think about what the
government is doing here.

The federal government owes $2.5 trillion to the
Social Security trust funds. And if the government doesn't pay that money,
it will default on its debt — something the U.S. has never done in its
history.

By the middle of the next decade, the Social
Security surplus will turn into yearly deficits as more Baby Boomers retire.
And the government will have to come up with hundreds of billions of dollars
a year to cover its obligations to the trust fund.

At that point, the debate over whether or not the
trust funds exist becomes a moot.

"The policy choices that we have to make good on
Social Security obligations are exactly the same with the trust fund or if
we'd never had the trust fund," MacGuineas says. "Raise taxes, cut Social
Security benefits, cut other government spending, or borrow the money.
That's the only way to repay the money."

Every old-fashioned American amusement park had a
fun house with mirrors that exaggerated your features. One mirror lengthened
your legs, another widened your middle, a third made your face a wavy mask.
If you stood in the right place, you vanished into endless distorting
reflections. Nowadays, the political stage has become America’s communal fun
house, and nobody looks stranger than Barack Obama.

The president’s critics on the right deride him as
a radical socialist seething with anti-American rage. To them, he’s a
frightening success who has transformed the federal government, ruined the
economy, and undermined national security. To the left, Obama is a tragic
failure who squandered his chance for dramatic change: no single-payer
health-care plan, no heated battle against Wall Street, and endless war in
Afghanistan. If the president is struggling these days, the critics say,
it’s perhaps because he’s out of touch with Americans, and even at odds with
his own principles.

Yet Obama is doing exactly what he said he would
do. Perhaps the critics should read—or reread—the president’s own books.
Dreams From My Father (1995) and The Audacity of Hope (2006) are
the most substantial works written by anyone elected president since Woodrow
Wilson (who wrote several books before he won election in 1912). In laying
out his philosophy, Obama contrasts the GOP’s excessive individualism with
the ideal of “ordered liberty” and the rich traditions of civic engagement
typical of America in the 18th and 19th centuries. He also criticizes
orthodox Democrats for too quickly dismissing market solutions and too often
defending failed government programs. Above all, he criticizes the
hyperpartisan atmosphere of contemporary public life.

Almost everything you need to know about Obama is
there on the printed page. In contrast to the charges coming now from right
and left, Obama is neither a rigid ideologue nor a spineless wimp. The Obama
who wrote Dreams and Audacity stands in a long tradition of American reform,
wary of absolutes and universals, and committed to a Christian tradition
that prizes humility and social service over dogmatic statements of
unbending principle. A child of the philosophical pragmatists William James
and John Dewey, Obama distrusts pat formulas and prefers experimentation.

Throughout his career, Obama has refused to
demonize his opponents. Instead, he has sought them out and listened to
them. He has tried to understand how they think and why they see the world
as they do. His mother encouraged this sense of empathy, and it’s a lesson
Obama learned well. Since January 2009, Obama has watched his efforts at
reconciliation, experimentation, and -consensus--building bounce off the
hard surfaces of political self-interest and entrenched partisanship, but
there is no reason to think he will abandon that strategy now. He knows that
disagreement is a vital part of the American fabric, and that our
differences are neither shallow nor trivial.

Although Obama’s reform agenda echoes aspects of
those advanced by many Democrats over the last century, he has admitted—and
this is the decisive point in understanding his outlook—that his opponents
hold principles rooted as deeply in American history as his own. “I am
obligated to try to see the world through George Bush’s eyes, no matter how
much I may disagree with him,” he wrote in Audacity. “That’s what empathy
does—it calls us all to task, the conservative and the liberal … We are all
shaken out of our complacency.” Obama rejects dogma, embraces uncertainty,
and dismisses the fables that often pass for history among partisans on both
sides who need heroes and villains, and who resist more-nuanced
understandings of the past and the present.

The shrill tone of Obama’s critics makes reading
his books especially illuminating today. In Audacity, Obama explained why,
because of our national traditions, the United States would never have a
single-payer health-care system and would have to find a distinctively
American hybrid relying on existing insurance plans. That’s what we have
now. He explained why, although he favors regulation to protect against
abuses, he rules out socialism and remains firmly committed to a market
economy. His financial reforms follow that pattern. Finally, he explained
why, although he opposed the war in Iraq, he supported war in Afghanistan
for -different—and legitimate—reasons. Now that he must bring that war to a
conclusion, he has made clear that the decision will be based on evidence,
not blind adherence to a predetermined course of action.

After almost two years as president, Obama has
failed to satisfy the left for the same reason that he has antagonized the
right. He does not share their self-righteous certainty. Neither his
personal restraint nor the achievements of his administration should
surprise anyone who has read his books. In the domains of health care and
economic regulation, and in his approach to Afghanistan, Obama has followed
his script: substantial but incremental reforms growing organically from
American experience rather than hewing to party orthodoxy. In November 2010,
President Obama remains the man who wrote Dreams and Audacity, a resolute
champion of moderation, experimentation, and deliberative, nondogmatic
democracy. It’s just that the distorting mirrors of political commentary in
America’s fun house can make it hard to recognize him.

Kloppenberg is the Charles Warren Professor of American history at
Harvard University and author of Reading Obama: Dreams, Hope, and the
American Political Tradition.

What am I missing? There must be some
aspect of our insane energy policies that I fail to appreciate.

“We the People” just booted a boatload of
spendthrifts out of Congress, after they helped engineer a $1.3 trillion
deficit on America’s FY-2010 budget and balloon our cumulative national debt
to $13.7 trillion.

The “bipartisan White House deficit
reduction panel” chimed in with a 50-page draft proposal, offering
suggestions for $3.8 trillion in future budgetary savings. The proposal
targets $100 billion in Defense Department weapons programs, healthcare
benefits and overseas bases. It also proposes a $13-billion cutback in the
federal workforce and lining out $400 million in unnecessary printing costs.
And yet, amazingly, not even this independent commission was willing to
eliminate the $6-billion sacred cow of annual ethanol subsidies. The current
45-cents-per-gallon tax credit for blending ethanol into gasoline
automatically expires December 31, as does the 54-cents-a-gallon tariff on
imported ethanol. So all senators and congressmen need to do is nothing, and
beleaguered taxpayers will save six billion bucks.

We can only hope. Unfortunately, renewable
fuel lobbyists will try to use the lame duck session to perpetuate the
special treatment. The National Corn Growers Association, Renewable Fuels
Association, Growth Energy, ADM and POET ethanol count as friends incoming
House Speaker John Boehner, incoming House Ways and Means Committee Chairman
Dave Camp, Senate Majority Leader Mitch McConnell, Senate Finance Committee
Ranking Member Chuck Grassley, other influential Republicans and scores of
prominent Democrats.

Perhaps if DePuy or Sofamor Danek donates
some spinal implants, enough wavering legislators will find the backbone to
challenge the subsidizers and ensure a little adult supervision over the
budget process. If this election was about anything, it was about ending
business as usual, ensuring energy and economic common sense, and not
bankrupting the United States. Ethanol and earmarks represent a key litmus
test for Republicans and fiscal conservatives. Failure to hold the line will
create a rocky road for credibility and progress next year. It should be an
easy decision. It’s time for action – or more accurately, inaction.

Federal laws already require that gasoline
be 10% ethanol, and EPA has announced that it will now allow up to 15%
ethanol blends for cars and trucks built since 2007. These mandates already
require that ethanol use increase from 13 billion gallons today to 36
billion by 2022, ensuring profitable markets for corn growers and ethanol
producers, without subsidies. Even large corn ethanol producers like Green
Plains Energy now say the subsidies are no longer needed.

The subsidies and tariffs only fatten
profit margins, reduce competition, increase consumer prices, cause frayed
relations with Brazil over barriers to its sugar-cane ethanol entering US
markets, and stifle technological innovation that could improve production
efficiencies and lessen environmental impacts. As Examiner columnist Timothy
Carney observes, “the tax credit won't boost ethanol consumption at all in
the future, because the mandate will set demand. So the tax credit will
simply subsidize the ethanol that blenders – ie, oil companies – would have
bought anyway.”

The corn/ethanol lobby says ending the
subsidies would cost up to 160,000 jobs. However, a recent study by leading
agricultural economists at Iowa State University concludes that only 300
jobs would be lost. If so, preserving the subsidies works out to $20 million
for each job saved. Meanwhile, says Louisiana State University professor
Joseph Mason, the Interior Department’s heavy-handed offshore drilling
moratorium could cost up to 155,000 Gulf Coast jobs. That’s on top of
countless billions of lease bonus, rent, royalty and tax dollars the US
Treasury will never see, because Interior, EPA, Congress and the White House
have made billions of barrels of offshore, Alaskan and Lower 48 oil and gas
off limits.

America could produce 670 billion gallons
of oil (including 480 billion gallons of gasoline and diesel) from a
splinter of ANWR equal to 1/20 of Washington, DC. Doing so would generate
enormous revenues, instead of requiring perpetual subsidies. By contrast,
reaching the 36-billion-gallon biofuel mandate would require 15 billion
gallons of corn-based ethanol from cropland and wildlife habitat the size of
Georgia, and 21 billion gallons of advanced biofuel from switchgrass grown
on additional acreage the size of South Carolina.

Opposition to extending the tax credit and
tariffs also comes from a growing coalition of meat and food producers,
environmental groups and consumer organizations. They emphasize that corn
ethanol production increases corn prices, reduces farmland available for
other crops, and drives up the price of beef, pork, poultry, eggs, corn
syrup and all groceries made with those products. It means fewer
malnourished people can be fed under current USAID and World Food
Organization budgets. The coalition also points out that growing and
processing corn into ethanol requires enormous amounts of water for every
gallon of alcohol fuel produced. (Cornell University agriculture professor
David Pimental estimates the inputs at 8,000 gallons of water per gallon of
corn-based ethanol.) Much of the water comes from already stressed aquifers
– and growing the crops results in significant pesticide, herbicide and
fertilizer runoff into our rivers, lakes, bays and oceans.

Producing ethanol from sugar cane carries
much lower water demands and environmental impacts. Pro-subsidy factions say
$6 billion is pocket change in a $3.6-trillion federal budget. It may indeed
be a small step. But all the caterwauling suggests it is a giant step for
Congress – and a hugely symbolic one that can no longer be avoided.
Moreover, if reductions like this are to be rejected as too trivial to
trifle with, how do Nanny State legislators justify their intrusive rules on
toilets, washing machines, plastic bags and light bulbs? How do they suppose
cash-strapped families balance their budgets? The ethanol mandates are
enough interference in what should be a highly competitive marketplace of
ideas and technologies for America’s energy future. Congress should not
muddy the waters even further, by extending the subsidies and protective
tariffs.

(While they’re at it, the lawmakers should
also pull the plug on chicken-fat-to-biofuel subsidies. This tax credit is
just another unaffordable, feel-good “green energy” boondoggle – that turns
waste fat into wasted tax dollars. Reducing effluent streams, garnering
positive PR, and selling their “alternative fuel” to oil companies and the
Air Force, under utopian biofuel mandates, ought to be adequate incentive.)
It should be an easy decision. It merely takes commitment to principles –
something our legislators better start discovering, if they want to be
around after the next election cycle.

In a Rasmussen poll taken before the midterm
election, half of the respondents said that members of Congress who
supported the 2009 federal stimulus didn't deserve to be re-elected. Many
weren't. Yet the lame-duck Congress might extend one of the key elements of
that stimulus: "Build America Bonds" (BABs). States and municipalities have
used these bonds to rack up some $160 billion in new debt over the last 19
months.

Build America Bonds were created to re-energize the
municipal bond market, which contracted sharply in late 2008. Investors had
become wary that the credit crunch would spread to municipals, as insurers
who back state and local bonds got hurt in other markets and stopped
insuring public debt. Facing declining tax revenue and growing deficits,
some local governments suddenly couldn't borrow.

The Obama administration responded with a new kind
of taxable bond that offered a 35% federal subsidy on the interest rate.
Washington designed the subsidy to appeal to investors such as pension funds
and overseas buyers who don't buy traditional municipal bonds because they
can't take advantage of their tax-free status. The federal subsidy allowed
states and cities to offer these investors an attractive return. The catch:
Congress authorized the program only through 2010, to allay concerns that
BABs would become a permanent bailout.

States and cities jumped deeply into this new
market. California alone has issued some $21 billion in BABs, mostly as a
substitute for its general obligation debt to support everything from school
construction to sewer projects. New Jersey has used up to $500 million to
recapitalize its depleted transportation trust fund. Columbus, Ohio, issued
$131 million in BABs to start construction of a downtown convention hotel.
And in Dallas, Texas, when no private operator would finance a new
convention hotel, the city went ahead with a government-subsidized hotel,
courtesy of $388 million in BABs.

Now dozens of governments and other municipal
issuers (like New York's Metropolitan Transportation Authority and the
University of California) have hired lobbyists to push Congress to extend
BABs beyond this year. And in its 2011 budget, the Obama administration
proposed making Build America Bonds permanent, with an interest-rate subsidy
of 28%.

But the BAB program hasn't been the unqualified
success its advocates claim. While the original municipal bond crisis in
late 2008 was attributed to the meltdown of other credit markets, it has
since become clear that investors retreated from municipal debt as much
because of the poor fiscal practices of many local governments. BABs have
only contributed to the problem, increasing state and local debt even when
the market has signaled that it considered some municipal borrowers
overextended.

One sure signal has been the sharp rise in the cost
for investors to insure against default. In June, the price of a contract
protecting an investor from a default by Illinois on its bonds rose to a
record high of $309,100 on $10 million of debt over five years, according to
CMA Datavision. The national average for states is $190,000 per $10 million
in debt. At that point, Illinois surpassed California as the worst credit
risk among U.S. states.

A more telling signal was that, based on the cost
of insurance contracts, CMA Datavision listed both states in June among the
10 biggest government default risks in the world. Illinois was at greater
risk of default than Iraq. Yet thanks to the BAB subsidy, Illinois was still
able to borrow some $300 million in bonds by offering a 7.1% interest rate.

Meanwhile, investors are realizing that states and
localities face long-term costs in addition to their muni debt, especially
retirement obligations. Joshua Rauh of Northwestern University and Robert
Novy-Marx of the University of Rochester assess the 50 states' unfunded
pension bill at $3 trillion, and they say that the municipal tab for
pensions could reach $500 billion. That is on top of some $2.8 trillion in
outstanding state and local borrowing, according to the Federal Reserve.

The Securities and Exchange Commission drew an
explicit link between pension liabilities and municipal debt in August, when
it charged New Jersey with fraud in its municipal bond offerings. The SEC
cited the state for not revealing the true extent of its pension woes in its
bond offerings—a clear indication the agency thinks growing pension debt may
impede the ability of some states to meet other obligations.

The governments that have made the most use of BABs
have been those with the greatest fiscal problems. The biggest issuer of
BABs, California, has relied on an unprecedented number of gimmicks to
balance its books in the last two years—such as temporarily increasing tax
withholding rates and issuing IOUs to vendors.

New Jersey used a big chunk of its BAB funding to
relieve the burden from past budget tricks. Over the years its legislature
has diverted gas-tax money from its transportation trust fund, which is
supposedly dedicated to public works, to paper over previous general account
budget deficits. Now the state is borrowing with BABs to restock the trust
fund, though servicing the interest on those bonds will haunt future
budgets.

The Obama administration believes the BABs' direct
federal subsidy is a more efficient way to raise money than traditional
tax-free municipals. But when money that would otherwise go to private
business flows into subsidized government activities, resources are
misallocated.

This is no idle speculation: The financial press is
full of stories of investment managers recommending BABs over corporate
bonds with similar ratings, thanks to the advantage of federal subsidy.
There is also a future bailout risk, given that the federal government might
not allow a state or local government to default on a Build America Bond.
None of this is what voters signed up for on Nov. 2.

Mr. Malanga is a senior fellow at the Manhattan Institute and the
author of the recently published "Shakedown: The Continuing Conspiracy
Against the American Taxpayer" (Ivan R. Dee).

Meet the new boss, same as the old boss. While we
were on vacation, as Politico reported, the House Democrats chose their new
leaders. In the 112th Congress, Speaker Nancy Pelosi will become minority
leader, Majority Leader Steny Hoyer will become minority whip, and Majority
Whip James Clyburn will become assistant minority leader, a newly created
position that keeps him at No. 3 in the Democratic hierarchy. In an effort
to appeal to the youth vote, Rep. John Larson will stay on as Democratic
Caucus chairman, the No. 4 position.

Other than the Washington Post's E.J. Dionne and
the Service Employees International Union, hardly anyone is happy with
Pelosi's decision to stay on. As TalkingPointsMemo.com reports, 43 Democrats
voted for Rep. Heath Shuler of North Carolina, her only challenger for the
spot.

The New York Times editorial board is displeased:
"If Ms. Pelosi had been a more persuasive communicator, she could have
batted away the ludicrous caricature of her painted by Republicans across
the country as some kind of fur-hatted commissar jamming her diktats down
the public's throat." So is the Times's Nate Silver, who notes understatedly
that "Ms. Pelosi is not very popular with the American public."

Fox News reported before the vote that some House
Democrats were circulating an anti-Pelosi letter:

In the draft of the letter, the members say
that they were "victimized by a national wave of resentment toward
Democrats, a wave that ensnared you along with us."

The letter goes on to say "Madam Speaker,
fairly or unfairly, Republicans made you the face of the resentment and
disagreement in our races. While we commend your years of service to our
party and your leadership through many tough times, we respectfully ask
that you step aside as the top Democrat in the House."

Rep. Eric Cantor--now the minority whip, next year
the majority leader--agreed. The Hill quoted him as saying before the
leadership votes: "This is the woman who really, I think, puts ideology
first, and there have been no results for the American people. And that
seems the direction they want to take again. It just doesn't make sense."

Actually, it makes perfect sense. Who better to
lead the Democratic minority than the woman who created it?

Or, to put it as a non-rhetorical question, who
would be the alternative? Shuler who challenged Pelosi, did so with "no
plans to win," according to The Wall Street Journal:

He told a gaggle of reporters and television
cameras outside the Democrats' contentious caucus meeting Tuesday that
he's not really working for votes. Asked if he has a shot to oust Ms.
Pelosi, the always-blunt North Carolina Democrat said, "No."

But he's running to make a point--specifically,
that House Democrats need a new face for their caucus. "It's not really
about winning," he said earlier this week. "It's about standing up for
what you believe in."

"Standing up for what you believe in" pretty much
rules out Steny Hoyer, the No. 2 Democrat, who presumably would have been
next in line if Pelosi had followed the example of her predecessor, Dennis
Hastert, and bowed out of the leadership. Hoyer is known primarily for a
scurrilous August 2009 USA Today op-ed that demonized ObamaCare opponents as
"un-American." His co-author: Nancy Pelosi.

Months later, Hoyer apologized, which is
undoubtedly to his credit. Pelosi has yet to apologize. One assumes she, not
he, was the instigator of this McCarthyite smear. But his having gone along
with it hardly marks him as any kind of leader.

Pelosi might have led the Democrats off a cliff,
but at least she led them. And actually, it would have been illogical for
the Democratic minority in the 112th Congress to pick a "centrist" leader,
for the party's caucus will be far less centrist than in the 111th Congress.

Look at the membership list of the Blue Dog
Coalition, the moderate group for which Shuler serves as whip. Of the 54
members of the coalition, only 25 or 26 won re-election (one race is still
undecided, with the Democrat leading). Twenty-two lost, and another six
retired, all replaced by Republicans. The Blue Dog Coalition, that is,
shrank by more than half.

By contrast, of the 78 House members of the
Congressional Progressive Caucus, only three--Alan Grayson of Florida, John
Hall of New York and Phil Hare of Illinois--lost their bids for re-election
this month. (One, Carolyn Kirkpatrick of Michigan, was defeated in a
primary.)

The reason is simple: Most far-left Democrats,
including Pelosi, come from heavily Democratic districts. When competitive
districts elect Democrats, by contrast, they tend to choose more-moderate
ones. In this year's election, the Democrats held their liberal base but
lost the center and the right, leaving their caucus considerably smaller and
much more left-wing.

In 2006, Rahm Emanuel, as chairman of the
Democratic Congressional Campaign Committee, recruited lots of those
moderates, who helped the party take the majority for the first time in a
dozen years. The result of electing Democratic moderates, however, was to
give Speaker Pelosi the votes she needed to jam her diktats, most notably
ObamaCare, down the public's throat, in the New York Times's memorable
phrase.

As speaker, Nancy Pelosi was a menace to society.
As minority leader in the majoritarian House, she has little power--and she
serves as a reminder to centrist voters of the dangers of electing moderate
Democrats. She's not an attractive face for her party, but one would be
hard-pressed to think of a more honest one.

May she serve as minority leader for many years to
come.

Heckuva Job, Holder
We're guessing Khalid Sheikh Mohammad won't be coming to Manhattan anytime
soon. "Failure is not an option," Attorney General Eric Holder once
blustered about his plan to treat terrorists as civilian criminals, but last
week's verdict in the Ahmed Ghailani trial--the defendant, a former
Guantanamo detainee, was acquitted on 284 of 285 counts in the 1998 embassy
bombings--proves that failure is a possibility.

ABC News's Jake Tapper quotes an unidentified
"senior administration official"--Holder himself, perhaps?--who notes that
the single conviction carries a sentence of at least 20 years and observes
with Holderian insouciance: "Would it have been better optically if he had
been convicted of more counts? Sure. Would it have made any practical
difference? No."

This would be more persuasive if Tapper's source
did not feel the necessity to hide behind anonymity. And of course the
outcome does make a practical difference. Everyone noticed that Ghailani was
one count away from total acquittal, which would have left the Obama
administration having to either hold an acquitted man as an enemy
combatant--which is perfectly legitimate but would not have been so good
"optically"--or turning a terrorist loose.

Obama administration critics have taken the
Ghailani verdict as vindication of the Bush administration's system of
military commission trials. But a pair of op-eds, one by John Yoo and one by
Benjamin Wittes and Jack Goldsmith, reflect what may be an emerging
consensus that, as Yoo puts it: "The Obama administration should drop the
idea of trials altogether and simply continue to detain al Qaeda members
until the war is over":

The customary laws of war have long recognized the
right to hold enemy combatants until the end of hostilities. As Justice
Sandra Day O'Connor wrote for the Supreme Court in the 2004 Hamdi
case: "The purpose of detention is to prevent captured individuals
from returning to the field of battle and taking up arms once again."
Punishment is not the goal of military detention. So the U.S. should
keep Guantanamo Bay open and postpone any trials until it has won the
war.

The Wittes-Goldsmith piece makes substantially the
same argument. Yoo and Goldsmith both served in the Justice Department's
Office of Legal Counsel during the Bush administration. But whereas Yoo is a
demon figure of the anti-antiterror left, Goldsmith emerged as a critic of
that administration's terrorism policies, albeit a careful and thoughtful
one. Wittes is affiliated with the liberal Brookings Institution, so the
agreement of these three men reflects a broad consensus among responsible
legal experts on terror policy.

Even amoebas learn by trial and error, but some
economists and politicians do not. The Obama administration's budget
projections claim that raising taxes on the top 2% of taxpayers, those
individuals earning more than $200,000 and couples earning $250,000 or more,
will increase revenues to the U.S. Treasury. The empirical evidence suggests
otherwise. None of the personal income tax or capital gains tax increases
enacted in the post-World War II period has raised the projected tax
revenues.

Over the past six decades, tax revenues as a
percentage of GDP have averaged just under 19% regardless of the top
marginal personal income tax rate. The top marginal rate has been as high as
92% (1952-53) and as low as 28% (1988-90). This observation was first
reported in an op-ed I wrote for this newspaper in March 1993. A wit later
dubbed this "Hauser's Law."

Over this period there have been more than 30 major
changes in the tax code including personal income tax rates, corporate tax
rates, capital gains taxes, dividend taxes, investment tax credits,
depreciation schedules, Social Security taxes, and the number of tax
brackets among others. Yet during this period, federal government tax
collections as a share of GDP have moved within a narrow band of just under
19% of GDP.

On average, GDP has grown at a faster pace in the
several quarters after taxes are lowered than the several quarters before
the tax reductions. In the six quarters prior to the May 2003 Bush tax cuts,
GDP grew at an average annual quarterly rate of 1.8%. In the six quarters
following the tax cuts, GDP grew at an average annual quarterly rate of
3.8%. Yet taxes as a share of GDP have remained within a relatively narrow
range as a percent of GDP in the entire post-World War II period.

This is explained once the relationship between
taxes and GDP growth is understood. Under a tax increase, the denominator,
GDP, will rise less than forecast, while the numerator, tax revenues, will
advance less than anticipated. Therefore the quotient, the percentage of GDP
collected in taxes, will remain the same. Nineteen percent of a larger GDP
is preferable to 19% of a smaller GDP.

The target of the Obama tax hike is the top 2% of
taxpayers, but the burden of the tax is likely to fall on the remaining 98%.
The top 2% of income earners do not live in a vacuum. Our economy and
society are interwoven. Employees and employers, providers and users,
consumers and savers and investors are all interdependent. The wealthy have
the highest propensity to save and invest. The wealthy also run the lion's
share of small businesses. Most small business owners pay taxes at the
personal income tax rate. Small businesses have created two-thirds of all
new jobs during the past four decades and virtually all of the net new jobs
from the early 1980s through the end of 2007, the beginning of the past
recession.

In other words, the Obama tax increases are
targeted at those who are largely responsible for capital formation. Capital
formation is the life blood for job creation. As jobs are created, more
people pay income, Social Security and Medicare taxes. As the economy grows,
corporate income tax receipts grow. Rising corporate profits provide an
underpinning to the stock market, so capital gain and dividend tax
collections increase. A pro-growth, low marginal personal tax rate
stimulates capital formation and GDP, which triggers a higher level of tax
receipts for the other sources of government revenue.

It is generally accepted that if one taxes
something, one gets less of it and if something is subsidized one gets more
of it. The Obama administration is also proposing an increase in taxes on
capital itself in the form of higher capital gains and dividend taxes.

The historical record is clear on this as well. In
1987 the capital gains tax rate was raised to 28% from 20%. Capital gains
realizations as a percent of GDP fell to 3% in 1987 from about 8% of GDP in
1986 and continued to fall to below 2% over the next several years.
Conversely, the capital gains tax rate was cut in 1997, to 20% from 28% and,
at the time, the forecasts were for lower revenues over the ensuing two
years.

In fact, tax revenues were about $84 billion above
forecast and above the level collected at the higher and earlier rate.
Similarly, the capital gains tax rate was cut in 2003 to 15% from 20%. The
lower rate produced a higher level of revenue than in 2002 and twice the
forecasted revenue in 2005.

The Obama administration and members of Congress
should study the record on how the economy reacts to changes in the tax
code. The president's economic team has launched a three-pronged attack on
capital: They are attacking the income group that is the most responsible
for capital formation and jobs in the private sector, and then attacking the
investment returns on capital formation in the form of dividends and capital
gains. The out-year projections on revenues from these tax increases will
prove to be phantom.

Mr. Hauser is chairman emeritus of the Hoover Institution at Stanford
University and chairman of Wentworth, Hauser & Violich, a San Francisco
investment management firm. He is the author of "Taxation and Economic
Performance" (Hoover Press, 1996).

Whew! My unemployed son (with four kids) in California will now be able to
continue his unemployment benefits. My unemployed son-in-law in Wisconsin will
be able to continue his unemployment benefits.

And I personally will benefit from the income tax cuts. And Erika is
scheduled for another spine surgery in Boston in February. Her previous six
(6/12) surgeries and months of therapies did not cost us a penny thanks to
Medicare and its Supplements. I'm married to a Million Dollar Medicare Woman ---
http://www.trinity.edu/rjensen/Erika2007.htm

All we have to do is pass the payment obligations along to our unborn great
grandchildren.
What I deal we're getting now. Of course there's nothing new in this way of
paying with deficit spending.

Oops!
The compromise discussed by Paul Caron is not quite a done deal in Congress.
Shucks!